The issue of what items IRS can and cannot change that arose in “closed” years is the issue discussed in Chief Counsel Advice 201604017.  In this memorandum the question arose regarding whether the IRS can make adjustments to the amounts included in income under the special temporary provision that allowed for deferral of cancellation of indebtedness income under IRC §108(i).

Sometimes it’s difficult to get clients to understand that when Congress gives a tax break, they impose conditions that must be met to maintain that break.  That’s especially true with items such as retirement plans where some or all of the funds in there are, in the client’s view, my money that can be dealt with just like any other of my property.

In the case of Family Chiropractic Sports Injury & Rehab Clinic, Inc. v. Commissioner, TC Memo 2016-10, the taxpayer’s failure to respect the requirements to maintain a qualified retirement plan proved fatal to the hoped for tax benefits.

The IRS in Notice 2016-9 gave social welfare organizations additional time to notify the IRS of their intent to operate under IRC §501(c)(4) under IRC §506 that was added by the Protecting Americans from Tax Hikes Act of 2015 (PATH).  This new requirement applies to §501(c)(4) social welfare organizations established after December 18, 2015 and certain other organizations already in existence. 

The due date for notifications of intent to operate under IRC §501(c)(4) will be no earlier than 60 days after the publication of regulations that will prescribe the manner in which such organizations must notify the IRS.  At that point they will submit the information required by IRC §506.

As the agency did after Congress retroactively reinstated higher limits for excludable transit benefits provided by employers in the 2014 extender bill, the IRS has released virtually identical special procedures employers may use for 2015 if they have previously included excess transit benefits as taxable to employees.  The notice is required because Congress yet again retroactively restored the higher amounts, though this time the increase was made permanent.

The procedures, provided in Notice 2016-6, allow an employer to avoid the necessity of filing a Form 941-X and obtaining employee consents if the employer takes all adjustments into account on the fourth quarter Form 941.

Being "close" to what is required is not enoughtCongress has enacted rather detailed requirements that must be met in order to claim a charitable contribution deduction.  One of those is the requirement at IRC §170(h)(4)(B)(iii) that provides as one of the requirements to make a deductible contribution of a qualified contribution easement the following:

(iii) in the case of any contribution made in a taxable year beginning after the date of the enactment of this subparagraph, the taxpayer includes with the taxpayer's return for the taxable year of the contribution -

(I) a qualified appraisal (within the meaning of subsection (f)(11)(E)) of the qualified property interest…

As the taxpayers in the case of Gemperle v. Commissioner, TC Memo 2016-1 discovered, a failure to meet such requirements will be fatal to the claimed deduction.

Real estate held by a taxpayer could be either an asset held for investment, an asset used in a trade or business, an asset held for personal purposes or an asset held for sale to customers in the ordinary course of the taxpayer’s trade or business.   The nature of the property affects the tax treatment of any gain or loss incurred when the property is sold.

In the case of Evans v. Commissioner, TC Memo 2016-7, the determination of the reason Mr. Evans held the real estate would determine if he had an ordinary loss from the sale of a property or a capital loss. 

In the case of Wright v. Commissioner, 117 AFTR 2d ¶ 2016-319 the Sixth Circuit Court of Appeals reversed the holding of the Tax Court holding that an over the counter foreign currency option in a major currency is not a §1256 contract (TC Memo 2011-292).

The issue was of import because if it wasn’t, then the taxpayer would not be allowedloss created by a major-minor tax shelter.  The shelter involved two pair of options that were designed to offset each other, but due to the requirement that §1256 options be marked to market, the taxpayer recognizes the loss inherent in that loss (which is a major currency OTC option) but not the gain inherent on the offsetting option (the minor option).

The Tax Court found that an individual who was covered by a union contract was nevertheless an independent contractor for federal tax purposes in the case of the Quintanilla v. Commissioner, TC Memo 2016-5.

An organization that ran a farmer’s market was found by the IRS to not qualify as a tax exempt §501(c)(3) organization in Private Letter Ruling 201601014. 

The organization operates a marketplace where farmers, businesses and artisans sell their goods directly to the public.  It also organizes special events where local craft vendors sell their goods, cooking demonstrations and other educational programs for adults, monthly educational events for children, and space at the market for local non-profits to promote their activities.

The IRS had been considering reversing course and issuing regulations under a provision added to the IRC in 1993.  In proposed regulations (REG-138344-13) the IRS proposed a method by which a charity might file an information return with the IRS that would satisfy the contemporaneous acknowledgement requirement for donations in excess of $250 required by IRC §170(f)(8).  However these regulations attracted a storm of controversy and in REG-138344-13

Neil Sadaka may have crooned that “breaking up is hard to do” but most often the IRS doesn’t get involved—but this case is an exception to that rule. In this breakup, the Tax Court determined that the IRS retained the right to determine whether amounts transferred from an individual’s former boyfriend represented gifts and that the taxpayer could not use the rescission doctrine to escape taxation on a $400,000 payment from said boyfriend she received that she later was order to return after a finding she obtained it by fraud.

The case in question is that of Blagaich v. Commissioner, TC Memo 2016-2 and involves matters taking place between Ms. Blagaich and her former boyfriend Mr. Burns in 2010, specifically transfers to Ms. Blagaich during that year, as well an agreement entered into during that year.

An S corporation had a problem—its subsidiary which had elected to be treated as a Qualified Subchapter S Subsidiary (QSUB) was about to be placed in receivership by a government agency, being in a condition “unsafe to conduct business.”  This would effectively result in the S corporation losing the entire subsidiary and receiving nothing in return.

The shareholders wanted to make the best of a bad situation and at least get an ordinary loss from the worthlessness of the subsidiary.  They came up with a theory about how to trigger an ordinary loss, a theory the the National Office gave its comments on in Chief Counsel Advice 201552026.  Unfortunately for the shareholders, the National Office did not concur with their view of the proper treatment.

The IRS attempted to include assets transferred during the decedent’s life to a family LLC in her estate in the case of the Estate of Barbara M. Purdue, TC Memo 2015-249 as well as claim that gifts of interests in the LLC did not qualify as gifts of a present interest. 

For purposes of including the assets in the Purdue Estate the IRS turned to its trusty favorite section for including assets, IRC §2036(a).  

An aircraft is held in a partnership and then leases that aircraft to a related entity for both business use and for personal use of two key officers.  Those key officers are also the owners of the partnership and hold interests in the related entity.  The entity to which the aircraft is leased includes, as required under the IRC, the appropriate portion of any personal use of the aircraft in the compensation of the key officers. 

When the partnership traded in one aircraft and acquired another, the question arose regarding whether the exchange qualified for treatment under the like kind exchange rules of IRC §1031.  Specifically, Chief Counsel Advice 201601011 looked at whether the aircraft in this situation were held for productive use in a trade or business in order to qualify for treatment under IRC §1031.

This blog has previously discussed an earlier IRS ruling that stated victims of identity theft will not be deemed to have taxable income from the receipt of such services.  At the time they warned that receipt of such services when no breech had yet occurred would generally be taxable under the standard rules related to items subject to tax.

The IRS did, however, request comments on other situations where entities may provide identity theft protection and whether additional guidance should be issued.  And at end of December 2015 the IRS expanded the relief in Announcement 2016-2.

A payment made to settle a fraudulent conveyance claim is, in the view of the IRS National Office, a payment made to defend or protect title and thus must be capitalized under Reg. §1.263-2(e)(1).  [Chief Counsel Advice 201552028]

The issue arose with regard to claims made against a taxpayer for transfers made between a subsidiary and the parent entity.  Various parties with claims against the subsidiary asserted that the transfers of assets violated various fraudulent conveyance provisions and thus those assets (or an equivalent in value) should be made available to pay their claims.  The parent paid a sum of money to settle these claims and the question arose regarding whether a deduction can be claimed by the parent for the payments as ordinary and necessary business expenses under IRC §162.

The IRS has announced an extension of the due date for filing Forms 1095-B, 1095-C, 1094-B, and 1094-C in Notice 2016-4.  The Forms 1095-B and 1095-C are used to report to individuals whether they possessed minimum essential coverage (MEC) for the year and, for employees of applicable large employers, whether they had an offer of MEC that provided minimum value as well as information to determine that offered coverage was affordable. 

Individuals use that information to determine if they are subject to a shared responsibility payment for failure to have MEC for some or all of the year, as well as whether the individual qualifies for a tax credit that offsets a portion of the cost of any insurance they obtained from the applicable exchange.

The IRS in TD 9746 has issued final regulations on the payout requirements for nonfunctionally integrated Type III supporting organizations, generally adopting the rules that had been put in place by the 2012 temporary regulations that had governed such organizations.